Getting the budget approved for customer success
No one makes business decisions worth thousands of dollars without a foolproof business case. And setting up customer success is a decision worth more than that. However, the business case for customer success is mostly straightforward. Especially, if we use the existing churn numbers.
And industry averages also make for a very good business case. The Average Annual MRR (Monthly Recurring Revenue) Retention rate for SaaS companies hovers around 70%. The best in class may achieve 130%. Clearly, the scope of improvement for any customer success team is 60% Growth in MRR. (Which is a HUGE opportunity).
So, how do you build a business case for Customer Success?
First, have a look at the areas of improvement.
- Current MRR Lost: MRR Churn (if not available, calculate from Average MRR * number of accounts churned)
- Current Upsell (Plan upgrade and expansions): Current number of upsells are likely to be limited
- Onboarding time and experience: Current Onboarding Cycle would be either too long or unpredictable or there would be no onboarding process.
- Referrals: What are the number of current Referrals? Most likely, they would be limited or there is no process to track the number of referrals.
Second, calculate the investment (cost) required for setting up the Customer Success practice.
- Team Cost (new Customer Success Manager (CSM) hires): Average Salary x required team size. (Consider the CSM :: Account ratio) Also check how to segment the accounts, as not all accounts need to be enrolled into the success program.
- Tool Cost: Tools such as a Customer Success Platform.
- Training Cost: Estimate the cost of training the new success managers.
TOTAL Investment: (Team + Tool + Training) Cost
Third, estimate the improvements from setting up a Customer Success program.
- MRR Saved: Compare expected MRR Churn with customer success program to MRR without a success program and that would be your MRR Saved.
- Improved Upsell: Estimate the value of increase in upsells as with a customer success practice in place, CSMs would know when an account is ready for upsell or expansion. And would be able to proactively take action.
- Better Customer Onboarding and Experience: What would be the expected improved onboarding time with consistent experience? What will be the value of this improvement in terms of reduced churn?
- Expected Referrals (new acquisitions): Estimate the improvement in MRR from increased number of referrals due to the customer success program.
- Reduced Cost of Support: Estimate the expected reduction in Support Cases and the amount saved due to less need of support staff.
TOTAL Improvement: 1 + 2 + 3 + 4 + 5
Ultimately, the decision makers need to know one thing: What will be the business impact with customer success. So, estimate the Business Impact from the customer success program by answering the following questions.
- What would be the new ACV (Annual Contract Value) for all accounts?
- What would be the LTV (Lifetime Value) of all accounts?
- What would be the improvement in CAC (Customer Acquisition Cost)?
- Estimate the Higher Valuation of the company due to increased MRR and increase in ACV.
Well-defined customer success programs have proven effective time and again. Equipped with the right business case for customer success, you can definitely make your customer success practice succeed.
You can also use the CustomerSuccessBox ROI Calculator to build a business case for a customer success platform.